Britain faces further humiliating downgrades to its credit rating after a lost decade that has seen the slowest economic recovery on record, the Chancellor was warned tonight.

In a blow to George Osborne’s credibility, the Office for Budget Responsibility, the official Treasury watchdog, today halved its growth forecasts for this year and warned that the plan to cut the deficit has stalled.

Official figures show real wages are due to fall by 2.4 per cent over the lifetime of this Parliament – seized on by Labour as evidence that the Coalition will leave people worse off at the next General Election than they were in 2010.

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How forecasts for GDP growth in 2013 have deteriorated over the past year

Plateau: Public sector net borrowing - the amount of extra debt the Government must take on each year - will remain roughly the same this year and in 2013/14

The dire prognosis prompted ratings
agencies Standard & Poor’s and Fitch to say they were looking at the
UK’s AAA status. Rival agency Moody’s has already stripped Britain of
its gold-plated credit score.

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The OBR said that economic
output will not return to its pre-crisis peak until early 2015 – marking
seven lost years since the slump started in 2008.

What comes in and what goes out: How the Government will spend £108bn more than it receives in taxes this year

By 2017, the size of the economy will
be 17 per cent smaller than it would have been if the economy had
continued on the pre-crisis path.

The watchdog said the UK would avoid a
triple-dip recession – but only just – with growth of 0.1 per cent in
the first quarter of 2013 following the 0.3 per cent slump at the end of
2012.

Gloomy: The Chancellor delivered his Budget against a backdrop of economic turmoil

But the OBR slashed its growth
forecasts for the whole of 2013 from the 1.2 per cent it was expecting
as recently as December to just 0.6 per cent. It also trimmed its 2014
forecast from 2 per cent to 1.8 per cent.

OBR chief Robert Chote said Britain
is suffering a historically slow recovery. ‘What has been remarkable has
been the slow pace of the recovery,’ he said.

The Bank of England warned that
there was ‘a roughly 50-50 chance’ of a triple-dip but added that ‘it
remained probable that growth would pick up as the year wore on’.

The economic slump has hit tax
receipts and exports remain sluggish, making it ever more difficult for
the Chancellor to balance the books.

Mr Osborne has made tackling the deficit and reducing borrowing the centrepiece of the Government’s economic policy.

The deficit fell from £159billion in
2009-10 under Labour to £121billion in 2011-12 as Mr Osborne’s austerity
measures were implemented.

But the OBR said progress has stalled, with the Government set to borrow £120.9billion this year and £119.8billion in 2013-14.

And the Chancellor is now set to
borrow £434billion over the next five years – around £55billion more
than expected at the time of the Autumn Statement in December.

The national debt is on course to top
£1.63trillion in 2017-18 – some £100billion more than expected in
December and nearly double the £840billion black hole the Coalition
inherited in 2010.

Mr Osborne was forced to admit that debt will not start falling as a percentage of national income until 2017-18.

This is two years later than he planned. ‘It is taking longer than anyone hoped,’ he admitted.

Graph showing GDP estimates and revisions from the last quarter of 2008 to the end of 2012

The Chancellor has called for more
public spending cuts in order to be able to say that borrowing has
dropped this year compared with last year.

Mr Chote said borrowing will be ‘essentially flat’ for three years before starting to fall again in the run up to the election.

The Budget small print reveals how the sluggish economy is hitting ordinary families.

Official figures showed average wages
grew by just 1.2 per cent in the past 12 months – less than half the
2.8 per cent rate of inflation – leaving millions of workers out of
pocket.

The Bank of England warned that
inflation will remain stubbornly high for another three years as the
squeeze on family finances intensified.